Prices and production
Oil prices continue to be closely linked to equity markets. On Tuesday oil reached a six-month high when it briefly touched $60 a barrel, then fell on Wednesday as the Dow Jones shed 185 points. When the Commerce Department reported US retail sales fell by an unexpected 0.4 percent in April, oil dipped 82 cents to close at $58.03.
This week’s stocks report showed the US crude inventory dropped 4.6 million barrels last week, contrary to analysts’ expectations. Of more interest were the demand figures which showed oil consumption over the last four weeks falling to 18.2 million b/d – down 7.9 percent over last year and the lowest US oil consumption since May 1999. Distillate consumption was down by 14 percent as compared to last year and jet fuel declined 10 percent.
With oil prices near $60 a barrel, OPEC appears to have at least temporarily given up on efforts to further cut production. In fact, Platts says OPEC’s production rose during April for the first time since last August. Price increases over the last six months have dampened the desire for more OPEC production cuts despite the increase in stockpiles. Political turmoil in Nigeria and Venezuela may bring about involuntary production cuts in the next few months anyway. In Nigeria, the militants have warned foreigners to get out of the Niger Delta as they are about to unleash a “civil war.”
Venezuela
Nationalization of oil service companies continues in Venezuela. So far the property seized includes 13 oil rigs, 39 terminals, 300 boats and numerous other installations. The government is planning to pay for the seized assets at book value and pay with newly minted bonds rather than cash or oil.
Given the critical nature of their services to Venezuela’s oil production, the oil service companies were thought to be relatively immune to nationalization. While operating supply boats may not be difficult, the gas injection plants which maintain reservoir pressure require much technical expertise, spare parts, etc.
For now most companies appear to be willing to negotiate with the government, which is demanding a 40 percent reduction in fees, rather than taking the issue to arbitration. More outside observers are expressing skepticism that the Venezuelans can maintain production without the full cooperation of service companies and are predicting production drops sooner rather than later. On Sunday, President Chavez said he plans export 3 million b/d to China in a few years.
China
Beijing is having economic troubles too. Industrial production grew by a more modest 7.3 percent in April, down from 8.3 percent in March and 10-11 percent in recent years. Exports slumped 22.6 percent during April vs. April 2008. Electricity production in April was down 3.5 percent year over year.
